The US interest rate markets experienced a slight upward trend in November, influenced by potential changes in customs and immigration policies that could impact monetary policy direction.
The two-year US Treasury yield decreased from 4.16% to 4.13%, while the ten-year Treasury yield declined from 4.28% to 4.18%. This movement in yields reflects a broader market sentiment as investors adjust their expectations based on evolving economic indicators and political developments.
The Barclays US Corporate Investment Grade Index saw a notable gain of 1.34%, driven by spread tightening associated with a rally across risk assets. Similarly, the Barclays US Corporate High Yield Index rose by 1.15%, with results bolstered by carry income and spread compression. These trends indicate a robust performance in the corporate bond market, suggesting investor confidence in credit quality despite underlying economic uncertainties.
Commodity prices faced headwinds in November, with gold prices declining by 3.21% and crude oil prices easing by 1.82%. This downward pressure on commodities may reflect broader market dynamics, including shifts in investor sentiment and geopolitical factors that influence supply and demand. The decline in gold suggests a potential shift in investor focus towards riskier assets amid a more optimistic economic outlook.
In currency markets, the Euro depreciated by 2.82% against the US dollar, while the US dollar experienced a decline of 1.39% against the Japanese Yen. These currency fluctuations highlight the ongoing volatility in foreign exchange markets, driven by differing economic conditions and monetary policy expectations across regions.
US Equity Hedged strategies reported generally positive returns in November, benefiting from a strong market beta and favorable long/short results. Manager performance across the board was largely positive, with only a few exceptions in the healthcare and energy sectors. The trend of alpha generation continued, primarily driven by long positions, as the market exhibited a risk-on sentiment, particularly in consumer discretionary and financial sectors.
European Equity Hedged strategies also produced positive returns, although overall performance was more muted in line with market indices. Long/short managers generated alpha, particularly from momentum and industrials, while exposure to France detracted from performance. The ongoing shift in sector preferences saw industrials and energy as the most net sold sectors, while materials and financials attracted significant buying interest.
Asian Equity Hedged strategies mirrored the positive trends seen in other regions, with performance largely driven by US exposures and short positions in China. The Japanese market displayed volatility, initially gaining strength due to solid economic data but weakening later in the month amid concerns over potential tariffs and a stronger Yen. In China, market sentiment remained mixed, with disappointment over policy direction focused on de-risking rather than stimulating growth, despite domestic investors holding optimistic expectations for increased stimulus.
Fixed income relative value strategies generally yielded positive returns in November, driven by macro directional and short-term interest rate trading strategies. Despite some volatility in German swap spreads and European country spreads, core micro-relative value strategies remained positive for most managers. Capital structure and volatility arbitrage strategies also fared well, particularly within the convertible bond space, which benefited from a strong representation of digital assets-related issuers. The convertible bond market saw robust issuance, with USD 11.5 billion priced, indicating strong demand and investor interest in this asset class.
Discretionary trading strategies reported generally positive returns, particularly in developed markets where receiver positions in European and UK rates contributed to gains. However, US themes exhibited mixed results due to market reversals. Systematic trading strategies also performed well, with trend-following strategies benefiting from exposure to currencies, credit, and equities, although commodities presented a drag on overall performance.
Overall, the performance dispersion across various trading strategies indicates a nuanced market landscape where specific sectors and asset classes can significantly influence returns. As investors continue to adapt to changing market conditions, the ability to identify and capitalize on emerging trends will be crucial for sustained success in the evolving financial landscape.